Contingent Liabilities Arising from Public Guarantee Schemes to Mitigate COVID-19 Pandemic: The Case of Spain

Abstract

Governments around the world have provided credit guarantees to ensure that companies with liquidity problems during the COVID-19 pandemic could find bank financing. In Spain, as of 30 September 2021, Liquidity Guarantee Lines managed by the public financial agency ICO had provided guarantees of around €100 billion. Public guarantee schemes (PGSs) have no immediate impact on fiscal balances, but they generate contingent debt. In this paper we propose a model to estimate the expected value of the increase in public debt resulting from. According to our estimates, PGSs would contribute to an increase in the debt-to-GDP ratio in Spain of between 0.96 and 1.01 percentage points in 2023.

Keywords: Public guarantee schemes, contigent liabilitiy, public debt

JEL Classification: H32, H63